Timing of emissions and effects of emission taxes in durable-goods oligopolies

Amagoia Sagasta and José María Usategui
The B.E. Journal of Economic Analysis & Policy

Given an oligopoly of firms that produce and sell a durable good that causes pollution at production, during use or at disposal, the effects of present and future emission taxes on quantities, emissions, consumer surplus, producer surplus and the sum of consumer and producer surpluses and the revenue from emission taxes for each type of emission are analyzed. Among other results it is proved that producers may support an increase in the emission tax in the future or in the present, that emissions in the present may be increasing in the emission tax in the future and that the timing of emissions may affect the directions of some effects of a change in an emission tax on welfare variables. The results obtained are based on the interaction between present and future emission taxes, the intertemporal effects of such taxes, imperfect competition, the strategic behavior of each firm in stealing sales from its rivals in the present and in the future, the type of emission and the producers' commitment problem. The analysis is extended to the cases of monopoly and perfect competition.

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